CommonSpirit opens its fiscal 2024 with $441M operating loss, $738M net loss

CommonSpirit Health marked the first quarter of its 2024 fiscal year with a $441 million operating loss (-5.1% operating margin) and a $738 million net loss due to inflation-boosted expenses and struggling investments, according to a Wednesday financial filing.

The nonprofit’s performance for the period ended Sept. 30 is a setback from the $23 million operating gain (0.3% operating margin) and $397 million net loss of the year prior, but a sequential continuation of the trends that left the organization with a $1.4 billion operating loss (-3.8% operating margin) for the full 2023 fiscal year, which closed over the summer.

Of note, CommonSpirit is expecting its numbers to improve upon the approval of the California’s provider fee program, which is expected to come in the late fall. Normalizing the organization’s opening quarters of fiscal 2023 and 2024 for funds to be received under the program brings the year-over-year comparison somewhat more in line—a $291 million adjusted operating loss during the most recent period and a $227 million adjusted operating loss for the year prior, according to the financial filing.

“Despite significant industry and economic headwinds, CommonSpirit was able to extend the momentum achieved in the previous quarter,” Chief Financial Officer Dan Morissette said in a release. “While this is encouraging, we take nothing for granted. More efforts are underway to provide the strong financial foundation this health ministry needs to provide care to everyone in the communities we serve, including the most vulnerable.”

The Catholic giant saw a substantial year-over-year bump in revenues that was “primarily due to improved volume levels,” it reported.

As-recorded net patient and premium revenues declined 2.9% year over year to $7.7 billion but increased by 6.8% when normalizing for the California provider fee revenues. On a same-store, normalized basis, net patient and premium revenues jumped 6.5% while per adjusted admission net patient and premium revenues increased by 1.8%.

Acute admissions and same-store acute admissions both rose 4.1% from the prior year’s first quarter, while adjusted admissions and same-store adjusted admissions increased by 5% and 4.8%. CommonSpirit reported increases across each of its volume metrics with the exception of acute average length of stay, which reflects a dip in acuity.

The downside of the rising volumes was cost increases that outpaced payer reimbursement despite a slight improvement in CommonSpirit’s payer mix, the organization wrote.

Here, the system’s salaries and benefits spending rose by 3.9%, and, on a same-store basis, 4.8%. These were attributed to higher salary costs that were partially offset by a reduction in full-time staff, the organization wrote.

Supply spending and same-store supply spending were up 3.5% and 4.1%, “primarily due to volume increases, higher than anticipated inflation and higher pharmaceuticals,” CommonSpirit wrote.

Purchased services and other operating expenses, normalized for the California provider fee program’s costs, rose 5.4%, or 5.5% on a same-store basis, “primarily due to higher medical fees, hardware and software maintenance, collection agency costs, insurance costs and out-of-network costs, partially offset by lower special charges,” according to the filing.

CommonSpirit found no support from its investments, for which it recorded a $289 million net loss. Total nonoperating net loss landed at $297 million.

The Chicago-based nonprofit, which spans about 2,200 care sites and 142 hospitals across 24 states, provided charity care, at cost, equal to 1.3% of its total expenses. As of Sept. 30, it had 154 days of cash on hand and 50.1% debt to capitalization.

In comments on its strategic focus for the coming fiscal year included in the filing, CommonSpirit said its leadership team is prioritizing efforts to attract and retain workers, expand its ambulatory offerings and develop integrated delivery networks to make its markets more essential, and standardize its tech tools to fewer and more integrated platforms. The system also wants to enhance its focus on market-based strategies and growth while “continuing on a path to financial sustainability,” according to the filing.

Higher volumes, rising costs and unfavorable margin movement have been the themes for major health systems during the quarter ended Sept. 30. Last week, Sacramento-based Sutter Health reported a $37 million operating loss while Kaiser Permanente noted workforce competition and “high costs of goods and services” had depressed its $156 million operating gain.